As European Union leaders meet in Brussels this week to create a lasting lending facility for indebted countries, France and Germany have surprised observers by stating their openness to discussing whether countries that share the euro currency should harmonise fiscal policy.

Berlin has opposed calls by Spain and others to move towards a full-fledged ‘fiscal union’ in the euro zone, arguing that tax and employment policies should remain fully decided at the national level.

However, it appeared last week to have agreed to a limited form of policy coordination between the 16 nations that share the euro currency.

Germany and France pledged on Friday (10 December) to better align their tax and labour policies to foster convergence in the euro zone, although little detail was offered.

“We have agreed to the convergence of German and French tax policies and I thank the German chancellor for this opening,” said French President Nicolas Sarkozy after a meeting with Chancellor Angela Merkel in the southwestern city of Freiburg.

“We are talking about labour law, about tax law and if we are to improve the coherence of the economic aspects of the euro zone, then we should target these issues step by step and propose solutions,” added Merkel.

The two leaders said they would present “structural” proposals next year in the area of economic coordination, but declined to elaborate.

However, Merkel and Sarkozy rejected calls to increase the bloc’s rescue fund and dismissed suggestions to issue joint sovereign bonds in the euro zone as a way of reducing borrowing costs of indebted nations.

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